I. CULTURAL AND SOCIOLOGICAL ASPECTS

According to the Human Development Index (HDI) of the United Nations Development

Program (UNDP), Latvia in 2002 is placed in the 53rd position in the world according to the

standard of living (92nd in 1997, 63rd in 2000).

According to Eurostat data, in 2002 per capita GDP estimated in purchasing parity units

equalled to 35% of the average in the EU (25% in 1995). Wages of people employed in the

national economy and the disposable income of households have continued going up for

several years. However, growth of income of people is very uneven, polarisation of material

well-being of people is increasing (see Section 3.7.2). Gini index161 has gone up from 0.30 in

1996 till 0.34 in 2002.

Income of people, both nominal and real, is going up in parallel with the general economic

growth (table 49).

Household consumption expenditure per one household member in 2002 equalled in the

average to 91.37 LVL162 (including the consumption of self-made products in kind), of

which in urban households – 101.51 LVL and rural – 69.97 LVL. In the 20% of the poorest

households of the first quintile163 the consumption expenditure was only 47.72 LVL per one

household member, using in the average 46% for food and 12% for housing of their total

consumption expenditure. Household consumption expenditure of the first quintile equalled to

only 52% of the average level of household consumption expenditure in Latvia. In turn 20%

of the richest households (fifth quintile) consumed 183.55 LVL per one household member,

which is 2 times more than average indicator and 3.8 times higher than consumption

expenditure of households of the lowest quintile.

The net wage earned by people employed in the national economy in 2002 was almost 1.6

times higher (by 58%) than in 1996. It went up by 8% in comparison with the preceding year.

Wage continues growing also in 2003. In the first quarter of 2003 net wage was by 9.7%

higher than in the first quarter of the preceding year. Real income of people employed,

adjusted for inflation, in recent years has gone up by 4% per annum. Wages of people

employed in the public sector went up faster than in the private sector.

Labour surveys of the fourth quarter of 2002 testify that almost one fifth (19.1%) of

employees received net wage till 60 LVL at their basic workplace, 60.01-100.00 LVL was

earned by 29.5%, 100.01-150.00 LVL – by 24.1% and 23.9% of salaried employees received

wage which was higher than 150 LVL. However the wage earned at the basic workplace is

not always enough to support one’s living. Therefore people look for additional work. The

results of the survey demonstrate that in the fourth quarter of 2002, 63 thousand people were

doing additional work (6.3% of the total number of employed). Besides, we should also take

into consideration the fact that not all the respondents were willing to share their information

about their additional income.

160 Copied from the Economic Development of Latvia. Ministry of Economics of the Republic of Latvia, Riga,

June 2003

161 Gini index varies from 0 to 1. It equals to 0 on condition that there is absolute income distribution equality and 1 – in

the opposite case.

162 Because of the change in methodology these results may not be directly compared to results of previous

surveys.

163 Quintile – one fifth of the number of surveyed households grouped in a growing order according to the size

of disposable income per one member of a household per month.

132 FACTORS AND IMPACTS IN THE INFORMATION SOCIETY

A PROSPECTIVE ANALYSIS IN THE CANDIDATE COUNTRIES

Starting with January 1, 2003 the minimum wage approved in the country was raised from 60

LVL to 70 LVL. Previously such increase was approved on July 1, 2001. In May 2003 the

government approved the concept on the minimum wage envisaging in the course of the next

seven years to raise the minimum wage till 50% of the average monthly gross wage of the

employed in the previous year. At the moment it equals to almost 35% of the average gross

wage of the employed.

Average wages in Latvia are slightly lower than in Estonia and Lithuania. Average monthly

gross wage in euros in the 1st quarter of 2003 in Latvia was 279 EUR, in Lithuania – 326

EUR and in Estonia – 405 EUR (less sickness allowances).

The highest wage in the 1st quarter of 2003 was paid in the sector of air transport (530 LVL),

financial mediation (459 LVL), water transport (345 LVL), post and communications (331

LVL). Growth rates of wages in some sectors were very high. In the 1st quarter of 2003

compared to the 1st quarter of 2002 the average remuneration for work substantially increased

in post and communications companies (by 21.8%), railway transport (by 28.9%), health and

social care (by 16.5%), educational institutions (by 13.6%). Low average gross monthly wage

is still typical for workers of construction (by 20% lower than average level of remuneration

in the state), agriculture (by 19% lower), road transport (by 22%), fishing (by 41%) and

service sectors.

There are substantial differences between public and private sector. In the 1st quarter of 2003

the average gross monthly wage of people employed in the public sector was 201 LVL (162

LVL in the private sector or by 24% more). This is mainly attributed to inadequate wage

records in accounting documents of private enterprises.

Table I1: Wages and Other Revenues (average per month, LVL)

1996 1997 1998 1999 2000 2001 2002

Average monthly wage of employees:

– in LVL gross 99 120 133 141 150 159 173

– in LVL net 79 88 97 103 109 115 124

– in USD gross 179 207 226 241 247 253 280

– in USD net 143 152 165 176 179 183 201

Average old age pensions of non-working

pensioners under social welfare system 37.82 42.24 51.26 58.18 57.79 58.16 62.14

Value of goods and services basket of complete

subsistence minimum, per capita 73.78 78.78 82.15 83.18 84.47 86.93 88.76

Real wage index of people employed (percentage

against the respective period of the preceding year) 91.2 103.6 105.3 102.9 103.0 103.5 106.0

In 2002 the size of old-age pensions paid to pensioners under the social welfare system went

up by 6.8%, compared to the preceding year. This is mostly explained by the fact that starting

with the end of March 2002 working pensioners are eligible for full pensions. In March 2002

the Constitutional Court decided that norms restricting the size of pension were contradictory

to the state Constitution and therefore invalid.

Moreover, from October 1, 2002 pensions below 90 LVL are adjusted (indexed) for changes

in the current consumer price index and 25% of insurance contribution’s real wage increase

interest or in the average by 1.3 LVL. Pensions between 90 LVL and 150 LVL were adjusted

only for consumer price index (average 1 LVL).

I. Cultural and Sociological Aspects

REPORT ON LATVIA 133

Pensions in Latvia are slightly higher than in Lithuania. In the 1st quarter of 2003 average old

age pension in Latvia was 101 EUR (63.54 LVL), in Lithuania – 97 EUR. In Estonia average

old age pension was higher and equalled to 117 EUR.

One of the factors having a negative impact on the size of pensions is the high share of very

low, recently awarded pensions. This may be explained by the pre-pension age retirement

caused by the increase of the retirement age. For some pensions this is explained by a lowly

remunerated work, especially in rural areas. Also private sector enterprises often hide real

income of their workers and do not pay social contribution payments in full amount. Still, it

must be noted that the average size of newly awarded pensions in 2002 has gone up from 49.4

LVL till 59.9 LVL.

I.2. Consumption patterns

Analytical conclusion:

In consumption a very modest model dominates with high share of goods of prime necessity

(food, public services). For instance, at the beginning of the nineties, attendance of theatres,

music halls, cinemas, museums, as well as purchases of books sharply declined. People with

average financial conditions could not afford more than what is necessary to survive. On the

other hand, even in these days, a lot of luxury cars belonged to the Latvian population.

Nowadays more emphasis is put on culture, recreation, other consumption matters, as well as

durable articles (cars, household items, computers), health and education.

In 2002, access to credit resources increased and caused remarkable increase in the purchase

of real estate – land and housing, as well as other consumption focused on the improvement

of living conditions – for instance, repairs of apartments. This in turn caused increase in

economic activity in sectors like retail trade, construction, commercial and real estate

services, and culture and education services.

It has to be mentioned that Latvian society is open to IS. The high ability to use ICT is based

on high computer literacy among younger people. It is estimated that more than 90% of

people aged between 15 and 30 are computer literate. It means that in every family there is at

least one member who is able to use the computer as means of communication. In addition,

only the number of computers in households cannot measure access to infrastructure. It is true

that also business computers and public access computers are used for personal

communication, and this pattern remarkably improves access to infrastructure.

134 FACTORS AND IMPACTS IN THE INFORMATION SOCIETY

A PROSPECTIVE ANALYSIS IN THE CANDIDATE COUNTRIES

Latvian cultural patterns support IST

Attractiveness of Western lifestyle

Multiethnic society

High computer literacy rate – more than

90% of people aged between 15 and 30

are computer literate

Several projects to open distance work

opportunities for disabled persons (Soros

Foundation Latvia, 5th FP)

Low income level

Depression in some part of society

Inability to use IST in some regions

Opportunities Threats

Economic development improves

Incomes improve

Economic stagnation

No collective support for IS in civil

society

patterns

REPORT ON LATVIA 135

The diagnosis for Latvia is built on conceptual considerations concerning the mission and

feasibility of IS.

A simplest definition of IS is that “IS is a society where information and ICT are used:

• as a resource,

• as means for education and self-education, development of skills,

• as means of communication.”

In general, IS is important because:

• information has become an important resource,

• skills and technical means are needed to ensure use of information,

• IT and precise information make communication and transactions faster,

• use of information and ICT increase efficiency of any activity.

The main actors and interrelations of the IS are:

• the state – world

• within the state: the government – population, the government – business, business –

population, business – business, population – business, population – population.

Implementation of IS is expensive and economic impact (or return) must be always assessed.

Like transport and telecommunications, information and information networks belong to

infrastructure elements that business and population use for business and private needs.

Economic impact depends on the proportional distribution between business and private use

of information and information networks. Wider use of information for business needs gives

higher economic impact, however, economic impact also exists if information is used only for

private needs.

In the last case IS contributes to human development, but this is rather a side effect than the

direct mission of IS. The general mission of every action having economic impact is welfare

building and this also regards to IS. If higher welfare is ensured by higher efficiency of

information use, and this is return, IS may be analysed from the demand and supply sides.

From the demand side IS pays off, if there are fields with high level of information intensity,

in which efficient use of information raises efficiency. From this point of view economic

development and structure are analysed in the Diagnosis.

From the supply side, two items are important – information as such (content), and technical

provision enabling use of information. From the technical point of view, IS is feasible and

effective only if:

• all or majority of actors are able to use information and ICT - in this aspect qualification

of labour force, education and human component (demographic situation, cultural habits)

are analysed,

• all or majority of actors have access to infrastructure – in this aspect development of

infrastructure elements and conditions of their use is analysed.

• From the supply side, the roles and status of actors differ.

The world provides information (content) and sets certain technical requirements.

The government sets framework for development of IS by its special IS policy, regulating

measures (price regulation), education, R&D policy and other policies, as well as for

136 FACTORS AND IMPACTS IN THE INFORMATION SOCIETY

A PROSPECTIVE ANALYSIS IN THE CANDIDATE COUNTRIES

economic development that provides financing of IS. Within IS the government is an

important element of the internal information network, as it provides information and

communication traffic for IS.

Business and population organise and finance large part of IS infrastructure, create customeroriented

information systems, operate and finance these systems.

Thus the feasibility of IS depends on the ability of business and population, as well as on the

government to maintain and finance proper (adjusted to the world) infrastructure, information

systems, networks and skills.

An important conceptual conclusion is that IS is neither a local problem nor a local

organisation. It is a part of a world-wide system, and national policies concerning the content,

technical and technological shape and implementation order of IS are national only in one

point – to join IS or not. In general, there are only two options with regard to IS – it exists or

not, and a coincidence of national policies with external challenges is decisive.

I. Demand side

There are two consumers for IS – business and population. Both consumers are important in

aspects of consumption needs (amount, structure) and financing, and certainly there is

synergy between them.

Business demand depends on economic structure, size and income (mean for financing of the

demand). Population demand also depends on population ability to utilise information and

ICT, as well as income (ability to buy services). Both depend on economic development.

I.1 Economic development and structure

We analyse economic development in order to assess need and feasibility of IS (demand side

of IS). IS is feasible if there is need for information as a resource or a need for

communication, and if economic development provides its financing. Information is more

needed in high-tech and information intensive industries, and more intensive communication

is needed if FDI and foreign trade are at a high level.

Economic development in Latvia is fast (growth by 5% in average since 1997), and even

faster growth (by 6-8%) is expected in the coming years. Growing domestic demand and

increasing exports ensure economic growth. Despite fast growth, mainly because of a very

low starting point at the beginning of the transition period in 1990-1993, the GDP per capita

in PPP units is the lowest among the candidate countries and makes just 35% of the EU

average. Thereby economic background in Latvia is less favourable for IS than in EU

countries and other CC, but the gap is reducing.

The majority of high internal risks that could reverse economic development are eliminated.

Implementation of market economy has become an irreversible process. Privatisation is

almost finished; main legislation of market economy is prepared and is being implemented.

Necessary market institutions are established, yet some of them (security markets) are not

very strong. Macroeconomic situation is stable, with a stable currency and a financial

structure. Latvia meets almost all Maastricht criteria.

Thereby macroeconomic framework in large is prepared for functioning of the economy in a

normal regime in compliance with market rules, existing conditions and legislation. The

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REPORT ON LATVIA 137

probability of internal shocks is low and there are not any evident obstacles for progressing

economic development.

Emerging economic structure requires information as a resource

Economic structure has remarkably changed compared with early nineties. Service sector

dominates. In the service sector the main services are trade and transport services. Knowledge

intensive services (finances, commercial services, business consultation services) develop on

the basis of FDI. The share of industry and agriculture has remarkably reduced. Construction

develops on a stable demand basis.

Since 2000, all sectors give positive contribution to the GDP growth. Fast growing sectors are

trade, construction and commercial services. Declining trends have stopped in real sectors –

industry and agriculture. Modernisation of manufacturing continues and manufacturing output

has started rapid growth (7-8% per year).

From the foreign trade aspect rising industries are those which are strong in exports: metal

industry, textiles and food production. All these industries are sensitive in many aspects:

growing labour costs, market regulations, low competitiveness due to small scale and other.

Besides, these industries belong to low value added sectors.

New industries, such as machine building, pharmaceutical industry, polygraph industry,

audiovisual industry and others gain in power. Growth was recorded in electronics and

electro-technical industry. In these sectors small newly established enterprises show the

fastest growth. Majority of these enterprises operate in co-operation chains with international

partner and produce for export.

Yet, the fastest growth has been achieved in trade. In service sector commercial services also

grow. Sectors providing public services (electricity, gas and water supply,

telecommunications) develop on the basis of local demand. Transport services are also

important for development. Development of cultural and leisure services, as well as education

services increases on the basis of higher income of the population.

Some service sectors (financial intermediation, commercial services) are generally equipped

with modern technologies. Several service industries use e-based business technologies

(eBanks, information systems etc).

Thereby all sectors grow, but the main contributors to the total economic growth are

traditional industrial sectors and trade, both characterised by low value added. The share of

value added in output of goods and services was 44.3 in 2002.164 The development of hightech

industries and services shows growing trends. FDI contributes to the development of

such industries.

Labour productivity differs in sectors, but it remains very low in manufacture. The low labour

productivity could be explained by the dominance of low value added sectors in Latvian

industry.

The “quality” of economic structure is reflected in particular in macroeconomic fields. The

most serious problem of the Latvian economy is growing current account deficit. Exports of

goods and services increase year by year, yet in the long-term period imports increase faster.

The share of industries producing higher value added is still low (the estimated share of hightech

industries in value added is 3-4%). The share of high-tech products in exports also is not

164 Macroeconomics of Latvia in figures, 2003, Central Statistical Bureau of Latvia, Riga, 2003, p. 40

138 FACTORS AND IMPACTS IN THE INFORMATION SOCIETY

A PROSPECTIVE ANALYSIS IN THE CANDIDATE COUNTRIES

high – according to different estimations it is about 6-10%. Also in services the low value

added sectors dominate. On the other hand economy needs equipment for modernisation and

consumption goods, and this increases imports. These are main the reasons for negative trade

balance and consequently growing current account deficit.

Therefore strengthening of the industries and services producing higher value added is seen

essential for economic development of Latvia. Production of higher value added is necessary

also if there is purpose to speed up welfare growth and convergence with the EU countries. It

has to be mentioned that the declared strategic goal of Latvia is to increase welfare on the

basis of economic growth that has to be achieved in result of the development of industries

and services producing high value added. Sooner or later these plans must be realised.

Taking into account that high-tech industries and services are based on information, we

conclude that the need for information as a resource may only increase.

Communication increases and expands territorially

Emerging economic structure mark out increasing need for communication. Trade, transport

services, tourism, international business and other services, as well as export-oriented industry

are connected with high intensity of international communication. In brief, expansion of

communication is connected with emerging higher share of information intensive sectors in

economic structure, as well as with the expansion of trade and FDI.

FDI and foreign trade increase the demand for IS. The first chain-react of FDI and foreign

trade is larger information flows and increasing amount of transactions, characterised as “the

state – world”. International transactions require that IS infrastructure in Latvia is to be

comparable and complementing at the world level. Second, FDI and foreign trade are

important sources for financing of IS: FDI provides investment resources and foreign

increases business income through expanding market capacity. Third, FDI and especially

foreign trade help to maintain local ICT industry at a compatible scale. It is important as some

capacity of ICT business is needed in order to maintain and develop IS networks and to adjust

national systems to the world level.

The FDI and foreign trade activity in Latvia is important in relation to the entire economy. In

2003 the main investing countries were Sweden, Germany, Denmark, and the USA.

Latvia is a very open economy – total foreign trade turnover constitutes 102% of GDP.

Exports and imports increase year by year. The total trade balance of Latvia is negative.

The emerging composition of the Latvian economy shows that the importance of sectors

using information as a resource or IT as a part of applied technologies increases, as well as

ICT industries. The development of high-tech industries, of which majority are informationbased

industries, is set as long-term goal of development of Latvia’s economy. This proves

the demand for the development of IS in Latvia. In addition, Latvia is a very open economy.

Development of FDI and high intensity of foreign trade that is connected with intensive

information flows and use of information for business needs increase the demand for

development of IS and facilitates its implementation. In order to provide easy communication,

ICT must be adjusted to technologies used in the main economic partners, which are

European advanced economies and the USA.

Diagnosis of Factors and Impacts in the Information Society in Latvia

REPORT ON LATVIA 139